In an interview following the results, CEO Jen-Hsun Huang was upbeat about the company’s “GRID” cloud computing initiative, and about the forthcoming “Tegra K1″ processor and its role in automotive applications.

Despite that upbeat forecast, it seems it was just not enough upside for investors. However, multiple analysts today are applauding what they see as newfound discipline and focus on the company’s part, picking and choosing its battles and eschewing the broader smartphone market.

Price targets and estimates are shifting around a bit here and there, not dramatically.

Bullish!

Hans Mosesmann, Raymond James: Reiterates a Strong Buy rating, and a $22 price target. “NVIDIA had a no-drama earnings call last night, with expected persistent seasonal PC patterns, share gains in GPUs, Tegra/mobile growth, and the emergence of datacenter growth (GRID + Tesla). While there could be some confusion regarding gross margin compression in the July quarter (in-line to slightly above our estimate) due to Tegra mix, the important take-away is emerging GRID momentum. After over a year of 100s of trials, GRID (GPUs in the datacenter) is set to be a big driver for NVIDIA over the next several quarters, if not an outright industry disruptor with virtually no competition and a TAM in the billions of dollars. With conventional bear themes – such as PC attach rates (rendered less relevant) and Tegra shifting focus away from the crowded mid- to low-end of the smartphone market – expectations going forward are as balanced as we’ve seen in years.” Mosesmann raised his revenue estimate for the year to $4.54 billion from $4.535 billion, while maintaining an 89-cent EPS estimate.

Kevin Cassidy, Stifel Nicolaus: Reiterates a Buy rating, and raises his price target a buck to $22. “Management’s expectations are for Tegra and professional GPU revenues to increase sequentially offset by the seasonal decline in PC GPU revenues. This product mix results in a sequential decline in gross margin. We are encouraged by the continued traction Nvidia is experiencing with its GPUs in data center and HPC markets. We expect accelerated revenue growth from these higher gross margin products in 2HF15 [...] Management also highlighted continued momentum in driving GPUs into enterprise and data centers, with Nvidia GRID available in more than 50 server platforms from 18 OEMs or ODMs, and over 600 GRID field trials underway.” Cassidy maintains a year estimate of $4.63 billion in revenue, but raised his EPS estimate to $1.21 from $1.16.

Krishna Shankar, Roth Capital Partners: Reiterates a Buy rating, and raises his price target to $22 from $20. “Near-term, we expect growth in professional workstation graphics, Tesla high-performance computing, and GRID graphics cloud virtualization for virtual desktop applications, We also expect growth in Tegra platforms for high-end smartphones, tablets, gaming and automotive/embedded to offset seasonal decline in PC graphics revenues. New product cycles in high end gaming PC graphics, Project Shield portable Android/PC gaming console revenues, enterprise professional graphics, virtual graphics with GRID computing/cloud appliances, and next-gen Tegra K1 smartphone/mobile ramp in 2014 for super-phones, gaming consoles, high-end set top box and smart TVs, and smart automotive applications are positive long term drivers.” Shankar raised his year estimates to $4.61 billion and 95 cents a share from a prior $4.53 billion and 85 cents a share.

Alex Gauna, JMP Securities: Reiterates a Market Outperform rating, and a $26 price target. “The stock was down ~2% in aftermarket reaction to the release, most likely on flattish revenue guidance and ~90bps q/q decline in gross margins due to stronger than expected Tegra contributions. The lower gross margins come with a corresponding offset in Op Ex restraint, and we continue to recommend buying the stock on: 1) the rising contribution of GPU virtualization, automotive inroads, and IP licensing that should lead to a more profitable and entrenched sales mix over time; 2) its new unified design approach and diminished Tegra mobile investments adding operating margin leverage; and 3) the instrumental role Nvidia technology plays in the advances underway in Cloud-based creative design, 3D design, self-driving vehicles, social gaming, and virtual reality. Although the company was more bullish on mobile Tegra and less upbeat on PC market share than we expected, we continue to believe its Maxwell GPU and Tegra K1 architectures are differentiated solutions that hold more upside potential than downside risk heading into F2H15.”

Bearish!

Rajvindra Gill, Needham & Co.: Reiterates a Hold rating. “NVDA reported strong F1Q15 (April) results but issued F1Q15 (July) guidance that came in slightly below expectations on EPS due to lower gross margins. NVDA has appropriately rationalized its OPEX and re-focused its efforts away from smartphones towards high-end gaming, automotive, enterprise and data center. These are the markets to focus on, in our view. However, there remains some uncertainty around the gross margin trajectory, the potential deceleration in GPU Y/Y growth rates and the question of how NVDA will replace the Intel royalty income it gets when the agreement ends in 2016 (accounts for ~40% of operating income).” Gill trimmed his revenue estimate this year to $4.50 billion from $4.51 billion, but raises his EPS estimate to $1.10 from $1.

David Wong, Wells Fargo: Reiterates a Market Perform rating, and a $15 to $18 “valuation range.” “Reported March sales and June guidance were in our view, solid [...] Nvidia’s GPU segment decreased 5% sequentially (up 14% year over year) in the quarter. Nvidia said that the sequential decline in the GPU business was due to continued strength in GeForce GTX GPU sales for the gaming segment offset by seasonal decline in desktop market. Tegra Processor revenue increased 6% sequentially and increased 35% year over year. Nvidia said that the sequential growth in Tegra was driven primarily by increased volumes for auto infotainment systems and embedded devices [...] Though we continue to question Nvidia’s longer-term secular growth potential, the company is achieving sales that are above our estimates.” Wong maintains an estimate for 2015 revenue of $4.65 billion, while raising his EPS view to 98 cents from 71 cents.

Ian Ing, MKM Partners: Reiterates a Neutral rating, and a $20 price target. “Data center commentary was positive. Tesla continues to be exposed to computing for big data analytics, while GRID virtualization could be contributing $10s of millions/Y on growth in trials (up 35% sequentially to 600 trials worldwide). That said, we expect GRID deployments will be lumpy (taking 3 months to 1 year to potentially become deployments). We believe IT enterprise customers may not yet fully embrace desktop virtualization given up-front investments in data center infrastructure to match existing desktop use [...] With Tegra Wireless and Data center business contribution in July, merely in line revenue guidance suggests significant offsets from consumer PCs and tablets. NVDA is still exposed to the PC/tablet demand, though it continues to hold sizable share of premium segments (58% to 66% of desktop GPU past 3 years).” Ing trimmed this year’s estimates to $4.54 billion and 90 cents from a prior $4.585 billion and 96 cents.

Christopher Rolland, FBR & Co.: Reiterates a Market Perform rating, and a $20 price target. “NVIDIA provided generally in-line 1Q14 details that corresponded with its preannouncement but 2Q14 guidance that, we believe, was slightly below the Street’s new expectations (guidance of $1.1B, versus Street expectations of $1.14B). While we were surprised to see shares sell off on Tuesday, after the somewhat muted guidance, we think that the sell-off was justified [...] We thought the 2Q14 gross margin was slightly weaker than expected. Pro forma operating expenses (including stock option expense) were also better than expected ($443.4M, versus our prior $447.2M) for both 1Q14 and 2Q14. We view better opex as a significant positive, as it may further indicate the new CFO’s desire to control expenses, with opex (particularly R&D) a tremendous lever in the model. Regarding the shares, bears will say NVIDIA faces long-term secular PC headwinds, falling GPU attach rates, and a lack of wireless traction. Bulls will say NVIDIA is making great strides in diversifying outside of notebook PCs and into Quadro, Tesla, GRID, and Tegra.” Rolland trimmed his year estimates to $4.49 billion and 93 cents from a prior $4.54 billion and 90 cents.

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There are 4 comments

MAY 10, 2014 2:44 A.M.

phileasfogg wrote:

Is there a typo in this sentence Tiernan?
"...Gill trimmed his revenue estimate this year to $4.54 billion from $4.510 billion,"
are these numbers swapped?

MAY 10, 2014 11:19 A.M.

Tiernan Ray wrote:

Phileasfogg: Indeed, it should have said "Gill trimmed his revenue estimate this year to $4.50 billion from $4.51 billion, but raises his EPS estimate to $1.10 from $1." Thank you for pointing out the error.

MAY 11, 2014 4:48 P.M.

Max wrote:

Hey, TR.

Thanks for this article, too. I find it truly amazing that even the most negative analysts are RAISING their earnings estimates (as I had suggested they would), yet they still don't seem to realize how cheap NVDA's share price is. And, I'm not sure whether they're all talking GAAP or non-GAAP earnings per share, but the math is pretty simple.

Given a NET cash position (after deducting the debt) of 3 Billion, and now only 570mm shares outstanding, gives them $5.26/share in cash. So, if you deduct that from the 18.05 closing price, the stock is trading at 12.79 ex-cash. And, with these "estimates" at $1.00-1.20/share, we're talking about a PE of 12.79 at most! At $1.20 it is a PE of 10.65. Truly ridiculous.

Lastly, I doubt you've seen this since it was only posted by this tech website 2 hours ago, but if true, this will likely become the catalyst I've been looking for to catapult the stock into the 20s.

Thanks for the late Friday article giving the analysts' reactions. What's truly amazing is that they still don't want to believe that NVDA is a new company, with accelerating growth in multiple areas, yet there are now 15-17 of them that raised their estimates in the last few days! I don't know if I've ever seen that many after an earnings report. Yet, most people still don't seem to realize how cheap NVDA's share price is. And, I'm not sure whether they're all talking GAAP or non-GAAP earnings per share, but the math is pretty simple.

Given a NET cash position (after deducting the debt) of 3 Billion, and now only 570mm shares outstanding, gives them $5.26/share in cash. So, if you deduct that from the 18.05 closing price, the stock is trading at 12.79 ex-cash. And, with these "estimates" at $1.00-1.20/share, we're talking about a PE of 12.79 at most! At $1.20 it is a PE of 10.65. Truly ridiculous.

And, although the stock was indeed down, Friday, given what has happened to so many stocks over the last few weeks, I think a drop of 2.43% is meaningless. It looked to me like a lot of shorts were finally covering (51mm short according to this week's Barron's) and perhaps GS was in there, too, working on the buy back, as long as that's legal the day after the CC. (The present phase needs to be done by July, and I think they were happy to get some in the high 17s and just over 18.) In any case, while the volume was 1 1/2 times normal, it wasn't titanic and it closed not only above the gap-down opening (17.94) and also over 18, which is a huge number that the stock closed over for the first time in 3 years, right after the February ER.

At 63, and with 37 years of experience as a professional, I don't think I've ever seen a more misunderstood or mistrusted complete turnaround in a company's prospects. Yet, although it's rare, when a company that was thought to be in jeopardy of failing DOES reinvent themselves, the market eventually gets it and rewards the stock with 100-300% moves. Add onto that the short interest (51mm in stock and 10-20mm in options) and you have the recipe for one of the great short squeezes in recent memory.

Lastly, I doubt you've seen this since it was only posted by this tech website 2 hours ago, but if true, this will likely become the catalyst I've been looking for to catapult the stock into the 20s. So many have doubted that Denver would ever truly arrive or be utilized, but if this is true, it will change everything.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.